Extension of trading hours, automated trading working wonders
KATHMANDU, July 27: Daily turnover in the stock market more than doubled to a record high of Rs 2.78 billion on Tuesday. Average daily turnover in the only bourse in the country has remained at Rs 1.3 billion after mid-January.
Full-fledged implementation of the dematerialized form of securities trading since mid-January has driven up daily turnover over Rs 1 billion from average daily turnover of Rs 70 million before that.
The extension of trading hours by an hour to four from July 17 has further given a boost to turnover. While stocks worth Rs 1.65 billion had changed hands on Monday, it went to a record high on Tuesday when 5.89 million units of shares of 143 companies were traded through 11,743 transactions.
"We can attribute the extended trading hours and reduced transaction cost for the phenomenal rise in turnover," Niranjan Phuyal, deputy manager of Nepse, said. "Extension of trading period by an hour means at least 25 percent additional transactions. Also, reduction in brokerage commission means there is financial incentive for the investors to revolve fund if they want to cash in on the bullish market."
“For example, if an investor used to pay Rs 20 for the transaction of shares worth Rs 1,000, he has to wait the share price to reach Rs 1,020 to sell it again after adjusting the brokerage commission. However, now the investor can earn profit even after selling it when the share price reaches Rs 1,010," he explained.
The government recently reduced brokerage commission by almost 40 percent in a bid to reduce transaction cost for investors.
According to Phuyal, the turnover can rise significantly if the trading and settlement could be completed in a single day. Currently, a seller gets the payment on the T+3 days, which means trading day plus three days, or payment on the fourth day.
"The recent rise in turnover shows that the turnover will be far higher if we succeed in settling trading on T+0 day," Phuyal, referring to the settlement of trading on the same trading day. "We can begin from few companies, say 20 to 25 companies, and gradually increase it after we have all the infrastructures ready," added.
Stock brokers say that the turnover also increases with the rise in share prices in the bullish market. "Automated trading, increased trading hours, and reduced brokerage commission have also increased the transaction volume. Rising value of shares is the other reason that has pushed daily turnover to record high,” Anjan Raj Poudyal, former president of Stock Brokers Association of Nepal (SBAN), told Republica. "Banks are lending at a cheaper cost due t excess liquidity. As there is no other lucrative avenue for investment, the money is flowing into the stock market."
Meanwhile, the benchmark Nepse index climbed up 28.01 points to close at a record high of 1,866.5 points on Tuesday. All trading groups, except the Manufacturing and Processing that shed 64.38 points, registered gains on the day.